Sales quotas can be your business’s best friend — or your sales reps’ worst nightmare. Done right, quotas are a valuable part of the sales process, providing guidance for your sales managers and sales reps while offering clear, useful metrics to keep your revenue on track. Done wrong, however, sales quotas can become just another number with no bearing on the actual health of your business.
But what is a sales quota exactly, and how can you use them to meet your goals? Keep reading for everything you need to know.
- Sales quotas are goals a business sets for its sales teams to help focus and drive its efforts. A sales quota also gives business owners a way to measure the success of their sales reps or sales team.
- Sales quotas are important because they help businesses stay on target and meet growth objectives. There are several methods sales managers can use to set a sales quota, such as using history/trends or customer-specific data.
- Common types of sales quotas include volume-, profit-, and revenue-based, combination quota (mix of several different types), and activity quota (measuring customer service).
- It’s important to understand the difference between a sales quota vs. a sales target. A sales quota is a specific numerical target for your sales team, while a sales target represents larger milestones you’re hoping to hit in future market trends and external factors affecting performance over time.
- You can calculate sales quotas by comparing the actual sales numbers during a specific time period against the target set for that time period.
- What Does a Sales Quota Mean?
- Why Are Sales Quotas Important?
- Most Common Methods for Setting Sales Quotas
- Types of Sales Quotas
- Sales Quota vs. Sales Target
- Sales Quota Management
- How Do You Calculate Sales Quota Attainment?
- What Percentage of Sales Reps Hit Their Sales Quota?
- How Sales Quotas Can Benefit Your Business
What Does a Sales Quota Mean?
A sales quota refers to the goals a business sets for its sales teams. It serves as a target number to reach, focusing and driving the sales team’s efforts toward achieving that goal.
The best types of sales quotas for you will vary based on your industry and the needs of your company. Some businesses may have numerical goals, such as “Sell 10 subscriptions per month.” Others may focus more on creating relationships with customers, as in “Reach out to 20 new customers each month.
Having a clearly defined sales quota ensures your sales reps and managers know what is expected of them, which can boost employee satisfaction. You will also want to calculate sales quotas on a defined basis to ensure your teams are hitting their goals.
Why Are Sales Quotas Important?
Sales quotas are important because they help businesses stay on target and meet their growth objectives. Without sales quotas, there’s no real way to know how successful your sales team is at closing deals. It also makes it difficult for sales managers to assess employee performance or to provide clear guidance for what needs to be done to increase revenue.
If you set sales quotas appropriately, they can help your business at every level of the organization:
- Defining your sales quota provides your company’s leadership with a measurable way to forecast and increase revenue.
- Setting sales quotas helps your sales managers understand their teams’ performance.
- Sales quotas provide individual sales reps with clear expectations for what success looks like in their role.
Most Common Methods for Setting Sales Quotas
Sales quotas are typically set using a few different methods. Some sales leaders may use history and trends to create an expectation of performance, while others might rely on customer-specific data or competition analysis. Still, others opt for top-down goals that look at the big picture with averages based on past sales behavior.
The method you use for your sales quota will depend on factors like your industry, market conditions, and other variables specific to your company. Ultimately though, it is critically important to make sure you’re setting accurate yet aspirational sales quotas that can guide your sales team to success.
Types of Sales Quotas
When setting sales targets for your business, it’s important to understand the different types of sales quotas that exist. The most common type is a volume quota, but there is also a profit quota, combination quota, revenue quota, and activity quota.
Each one offers its own advantages and challenges in terms of measuring performance:
A volume sales quota is exactly what it sounds like. It measures the number of products or services sold within a given period of time and can be used to assess both individual performance as well as company-wide results. A volume quota example would be “Sell 10,000 units by the end of this month.”
A profit quota focuses on generating sufficient revenue, rather than just meeting a certain sales volume. Profit quotas can be used in combination with revenue and cost of goods metrics to ensure that profits are maximized while still meeting customer demand. An example of a profit sales quota would be “Sell our new product with a 35% gross margin.”
A revenue sales quota focuses on the total monetary value of sales rather than unit volume. A revenue quota takes into account more complex factors such as discounts, promotions, and customer acquisition costs in order to measure overall performance. For example, your revenue sales quota could be “Generate $500,000 in revenue this quarter.”
A combination quota is a mix of several different types of metrics, typically volume and revenue-based. This is an effective way to capture multiple priorities and measure performance across multiple departments or sales teams. For instance, you could set a combination sales quota of “Generate $1 million in revenue while selling 10,000 units in the first quarter.”
An activity sales quota is set to address the qualitative parts of a sales process. It measures factors such as customer service, hours spent per sale, or number of calls made. If your market is particularly unpredictable, an activity sales quota can be a good way for sales leaders to measure what their sales reps actually do, rather than evaluating them on factors beyond their control. For example, “Call 25 new potential customers” could be an activity-based sales quota metric for one quarter.
Sales Quota vs. Sales Target
It’s important to understand the difference between a sales quota and a sales target. Sales quotas are specific numerical targets, either in terms of volume, revenue, or some other metric. These are set by a sales manager and represent the numbers they expect their team to reach in a certain time period.
Sales targets, on the other hand, are less definite goals — they’re larger milestones you’re hoping to hit rather than concrete figures you have to hit. They also tend to be more long-term than sales quotas and can take into account future market trends and other external factors that affect your performance over time.
Sales Quota Management
Now that we know what sales quotas are, let’s look at how to effectively manage those numbers for your team.
Establish Your Baseline
As your first step, you need to understand where you already are. Review your team’s past performance (including each individual sales rep) and track trends in order to understand what’s working and what’s not, as well as to forecast potential upcoming obstacles.
Know what numbers you need to hit from a revenue standpoint and how those break down for your particular team.
From there, you can start to identify what type of quotas will be most effective for your team and what those numbers need to be. Make sure you’re measuring numbers that will get your business where it needs to go and provide an effective, motivating structure for your sales reps.
Set Realistic Goals
Once you have an idea of the type of quotas your team needs to hit, it’s important to ensure those goals are realistic and achievable. If the numbers seem too high or unattainable for your sales reps, they won’t be motivated to work toward them.
Instead of setting the bar impossibly high — which could demotivate your sales reps — focus on incremental improvements that are achievable over time. This will help build morale and motivate your employees as they strive to reach their monthly targets. You might consider different sales quotes depending on the skill level of each sales rep as well.
Communicate Performance Expectations
One of the most important steps in sales quota management is to make sure employees understand what their numbers are and why they’re important. If a sales rep is unclear on their sales targets, it could lead to job dissatisfaction and high turnover.
Having effective communication with your team will ensure everyone is on the same page, with clear expectations for their own performance and an understanding of how their individual contributions fit into the larger picture.
Determine the Target Review Period
In addition to making sure your sales team understands their sales quotas, it’s important to set a timeline for when those goals will be evaluated and reviewed.
This helps provide structure to your sales team and gives them a better sense of what needs to be done in order to meet their sales quota. It also allows them to break down larger quotas into smaller milestones to ensure they stay on track throughout the month or quarter.
How Do You Calculate Sales Quota Attainment?
Measuring your sales quota requires tracking sales performance over the review period. You should look at both total revenue and individual team member results to understand what’s working and pinpoint areas for improvement.
To measure whether a sales quota was met, simply compare the actual sales numbers during a specific time period against the target set for that time period. If a team or an individual has reached their goal, their attainment is measured as 100%. Any quantity sold in excess of these goals — or, in the case of an activity quota, additional meetings taken, calls made, etc. — means they achieved more than 100%.
What Percentage of Sales Reps Hit Their Sales Quota?
The average sales rep quota attainment rate is between 68% and 80%. The actual percentage will depend on the industry, product, or service sold, market conditions, as well as the effectiveness of your team’s strategies.
Because sales quota attainment is rarely 100%, building margin into your forecasting is important. Also, make sure you’re assessing both factors that are in your team’s control, such as activity quotas, as well as the revenue numbers your business needs to be successful. Brief your sales manager to ensure everyone on the team has reasonable expectations when it comes to setting sales quotas and measuring success.
How Sales Quotas Can Benefit Your Business
The right sales quotas can benefit your business in a number of ways. Sales quotas make it easier to forecast potential revenue and understand your sales pipeline. They also provide visibility into what’s working or not with regard to individual performance and team collaboration.
A sales quota also acts as a clear goal for everyone on the sales team. A sales quota can help you stay focused on what really matters and ensure everyone is making progress toward success, both as individuals and as a company.
These are just a few of the ways sales quotas can help business owners maximize their revenue potential and ensure that their teams stay on target. With proper planning, setting, tracking, and management of sales goals, you can use sales quotas to get the most out of your employees and reap the rewards for your company’s financial health.
Richard Brooks is a sales expert who has worked in the industry for decades. Richard enjoys staying current on emerging sales trends and learning about new tactics to help deploy across his team. Based in Atlanta, Georgia, Richard loves to explore the city with his wife, sampling all the craft beer and great food.